Nonprofit organizations live and die by our reputation.  It’s what brings us clients, volunteers, funding, and dedicated staff who could earn more in a for-profit setting.  But what is reputation, and how do you protect it?

I spoke with Dr. Nir Kossovsky, the executive secretary of the Intangible Asset Finance Society and the author of Mission: Intangible. Managing risk and reputation to create value and the more recent Reputation, Stock Price, and You ).

Nir, what is reputation as you define it?

Many companies think of reputation in terms of likeability, but people express your reputation through their wallets.  In every relationship, there comes a moment of truth.  The customer is looking at what you have to offer and thinking about everything they like about it–but do they actually buy it?  The correlation between likeability and the decision to purchase is very low.

I think of reputation as a set of expectations.  The customer expects a specific kind of performance from you, and you expect that if you perform, the customer will purchase what you have to offer.

So your reputation is more than just your brand?

Your brand is the promise you make, and that sets the expectations.  Your reputation is whether you are known for keeping your promise.  Your reputation can be your greatest asset.  It can create cash flow for your organization.  (It’s also a liability in the sense that to keep your brand promise, you will have to spend time and money.)

What is the cash value of having a good reputation?

It adds value at every level. For instance, you can hire and retain good employees for less when they expect your company will be a great place to work and their expectations are fulfilled.

The way the New England Patriots used to be able to attract great players for less because they expected to have the chance to compete for a championship every year?

Exactly.  You can measure the discount employees give when they love to work for you, and when they stop loving their jobs, it costs you.

How else does a good reputation pay off?

Suppliers and vendors also charge less when they trust you, and they charge more when they think you are the proverbial pain in the ass to work with.  Regulators are required by law to take reputation into account.  Even creditors, who are as unsentimental as anyone in business, give a reputation discount.  Organizations with a good reputation borrow money at 60 basis points, or .6%, less than companies without that advantage.  And nonprofits start out with a good reputation because people know they are devoted to a mission.

But it’s different for nonprofits, isn’t it, because we don’t have one set of “customers”?  Some people pay for the services that other people receive, and the funders and regulators often don’t know what the clients think of us.

It is more complicated for nonprofits.  Your funders and regulators try to measure performance by setting up objective measures and requiring you to use them when you report.  Having a good reputation with them is important because when they come under public pressure to cut programs, they may wield the axe somewhere else.

It’s like protecting against terrorism.  The U.S. can’t prevent terrorists from striking anywhere in the world: all it can do is to ensure they go seeking a softer target.  You can’t stop ideological attacks on your programs, but you can make your own agency less vulnerable.

You believe performance is the key to reputation.  Should nonprofits take the attitude, “Just do the work and it will speak for itself?”

No, that would be naive.  If a tree falls in the nonprofit forest and no one hears it, it will not make a sound and it will not add to your reputation.  You may be not-for-profit, but you are still competing with other organizations: not only in your field, for clients, but all the other organizations, for funding.  You have to communicate your value proposition just as effectively as for-profits do.

What role can nonprofit communications play in building reputation?

Communications are a major tool for reducing reputation risk and increasing the value of your reputation.  Relations with the public and with the funders and donors who invest in your program are key.  Your communications are vital to the financial health of your nonprofit organization.

Okay, readers, your turn.  What are you doing to make sure your nonprofit organization lives up to the promise it makes…and that people recognize and appreciate your performance?